A century later aviation is still hamstrung by fragmentation

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Associated Press

Qatar Airways chief executive Akbar al-Baker, left, and Iata director-general Tony Tyler speak to the media during the association's annual meeting in Doha yesterday. Photo: AP

Tim Hepher Doha

On New Year’s Day, 1914, Abe Pheil squeezed into the open cockpit of a Benoist Type XIV boatplane in St Petersburg, Florida, and became the first airline passenger, flying 32km in 23 minutes for a specially auctioned fare of $400.

Last year 3 billion people followed in his footsteps.

But while the first century of paid flight has transformed the passenger experience from a bone-shaking wooden biplane to frills such as flat beds, for many investors it provides the same risk of getting wet as the original hop across Tampa Bay.

Global airlines made $13 billion (R137bn) last year, but a centennial gathering in Doha this week heard that margins remained thin, and the industry has rarely if ever covered its cost of capital since the original St Petersburg-Tampa Airboat Line.

At the heart of the problem is a debate about whether a unique system of ownership controls and bilateral agreements, which make it hard for airlines to combine, should be relaxed.

“We as an industry wish that we were treated like any other industry and were able to buy and sell across borders, and merge and do business like any other business,” said Tony Tyler, the director-general of the International Air Transport Association (Iata), whose more than 200 members are meeting in Doha until today.

“After 100 years, we haven’t found a way of doing that and governments haven’t found a way of letting us do it – not yet,” he said ahead of Iata’s annual meeting, where a replica of the first boatplane has been given pride of place.

About 3 000 people gathered to watch the original plane make the first scheduled flight, which took place a long way from the storm clouds of conflict gathering in Europe.

But experts say the background to today’s ownership debate lies in decisions taken after the last century’s wars, when airspace was deemed sovereign partly due to fears of militarisation. The alternative, treating the sky like the high seas, was rejected.

Those fears have retreated but the bureaucratic landscape remains, with the industry ruled by bilateral traffic rights limiting market access, and backed up by ownership restrictions that help to preserve more than 1 000 airlines.

Despite extensive deregulation and consolidation in the US and Europe, airline leaders say ownership barriers are hampering efforts to cope with high fixed costs.

“It is a very fragmented industry because you can’t consolidate across political borders,” Tyler said.

“If you take the rules that run airlines and translate them into another industry, you do get some pretty funny ideas. The consequences seem bizarre, yet those are the ones we work in.”

The sheer scale of the Iata event staged each year is proof of the industry’s dispersal. Without foreign ownership controls, such a summit of industry leaders might look rather different.

“You could have five, 10 or 20 big global brands competing with each other wherever they go, possibly with differing regional strengths in different parts of the world,” Tyler said, asked what the industry would look like with free ownership.

“I am sure you would still find regional airlines would make a tidy living as specialists in particular regions.”

Privately, some airline chiefs put it more bluntly.

“There are quite a few airlines here that just shouldn’t be around,” one delegate said, asking not to be named.

Tyler said the cost structures of low-cost airlines and the traditional network carriers would converge, especially when the time came to share the cost of new airport infrastructure, and that more non-traditional airlines would be welcome in Iata.

ICAO, the UN aviation agency, which oversees rules dating back to the 1944 Chicago Convention, last year called for looser control of ownership and more liberalisation.

But analysts say that could take decades to achieve.

“Until the laws are changed, which is very unlikely, the industry is not going to change in the way it,” said UK-based aviation consultant James Halstead. – Reuters


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